Trade Facilitation and Development
Encyclopedia
Success in export markets for developed and developing country firms is increasingly affected by the ability of countries to support an environment which promotes efficient and low cost trade services and logistics. Policies related to trade facilitation
and economic development
reflect the idea that trade can be a powerful engine for accelerating economic growth
, job creation, and poverty reduction
.
(WTO) have led to a considerable reduction in tariffs on goods crossing national borders. Today, as the role of traditional trade barriers gradually vanishes, the focus of trade policy has shifted to the remaining non-tariff barriers to trade
, including trade facilitation
.
Trade facilitation
involves a wide range of activities centered on lowering trade transaction costs for firms in global commerce. These costs include the price of moving freight from the factory to final destinations. Firms must manage border clearance procedures and pay trade services fees, among many other steps after goods and services are produced. As such, trade facilitation
involves much more than trucking goods across national borders or shipping a package by sea transport.
(OECD, 2002) indicate that trade transaction costs amount to up to 15 percent of the value of traded goods globally. A subsequent OECD study (2003) found trade transactions costs to be higher on agricultural and food products, fish, and forest and wood products (since these products are subject to additional border procedures due to sanitary and phytosanitary requirements). These are products for which many developing countries have an advantage. The same study also reported that small and medium enterprises suffer most from poor trade-related practices and poorer developing countries have a larger share of such enterprises. A number of other studies have illustrated the specifics of why trade facilitation matters and specific sources of trade costs. One study, for example, found that barriers to export performance in Africa
are closely related to firm characteristics and policies that raise trade costs. This includes non-transparent customs
laws and administration. Much less evidence was found that transport infrastructure, in comparison, had a significant impact on export performance (Clarke, 2005).
is conducting extensive research on the issue of trade facilitation and its effects on trade, economic growth, and development. The main part of the research is carried out under the project Trade Costs and Facilitation: The Development Dimension. This project is focused on contributing to stronger understanding of the concrete relationships between trade costs, trade facilitation, private sector growth, and export competitiveness in developing countries. A major focus of the work is on exploring the dynamic gains associated with lowering trade transactions costs and identifying the relative importance of related reform measures.
The World Bank's Doing Business Report (2007) documents the wide range of reform needed in developing countries to lower trade costs. The report outlines procedural requirements for importing and exporting a standardized cargo of goods in 155 countries. While the total cost to import (in US$ per container) was $842 on average in high income countries, it was $1960 in low income countries. Typical regulations in low income countries required 13 documents from domestic regulatory agencies as compared to six signatures in high income countries, nine in upper middle income and ten in low middle income countries. On average it still costs almost two and a half times in expenses, more than twice as many documents and four times as many signatures to trade in a poor country as it does in rich countries.
The Doing Business Report also provides concrete examples of efficiency savings made possible through trade facilitation reforms. Much of these relate to addressing regulatory reform and other steps--that in contrast to hard infrastructure--constitute the major part of why engaging in trade takes longer in developing countries. Progress in reducing costs, however, has been made. For example, Guatemala
with the support of the Inter-American Development Bank
changed to an electronic system for export authorization in 2000. Within four years the time for authorization of export documents dropped from one day to around three minutes. Tunisia
has also introduced an automated system that provides a one-stop trade documentation-processing platform. Due to this innovation the processing time for trade documentation became reduced from 18 to 7 days which probably had led to substantial productivity gains according to the United Nations Economic Commission for Africa
.
on the micro-level (OECD, 2005). They observe that in some developing countries inefficient trade regulations, documents and procedures are hindering firms' participation in export markets. The studies find large potential benefits from streamlining trade regulations and hence cutting the costs for exporting.
Analysis by the World Bank
suggests that raising global capacity in trade facilitation
(port efficiency, customs
, regulatory transparency, and information technology
used in trade transactions) halfway to the global average would increase world trade by $377 billion (Wilson, et al. 2005). This is an increase of about 9.7 percent in global trade with the majority of the gains due to domestic reform and capacity building. About $107 billion of the total gain comes from the improvement in port efficiency and about $33 billion results from the improvement in customs environment. The gain from the improvement in regulatory environment is $83 billion. The largest gain ($154 billion) comes from an improvement in information technology infrastructure which is increasingly applied all across the trade value and logistics chain. The important work ahead to lower trade costs however is outside the scope of trade policy, therefore, and squarely centered within domestic reform agendas, including services such as transport, telecommunication, and others that affect trade transactions costs. There is also a key role to be played by private sector-led policy reform according to many of these studies.
in the Doha Development Agenda negotiations. The outlines of a possible agreement includes, among others: (1). New obligations to promote electronic distribution and transmission of government trade regulations on imports and exports; (2). Standardization of certain basic fees for imports; (3). Stronger rules to help ensure freedom of transit for goods crossing national borders.
In the WTO Secretariat tabulation of proposals from August 11, 2006 there is consideration of more "ambitious" changes to current obligations, such as establishment of a single window for exporters and importers at customs
or accepting copies of documents for import and export in lieu of originals. Since 2002 there have also been talks about explicit ties between a package of technical assistance and development aid as part of any final agreement. Developing countries participated very actively in these negotiations and before the suspension of the Doha Round in late 2006 considerable progress had been achieved (World Bank, 2006).
Changes to the multilateral trade rules noted above can help in advancing transparent and predictable trading procedures for exporters. These rules have not been revised in over 50 years and crafting an achievable and focused next step in the Doha Agenda will be helpful to traders. This is especially true for small and medium-sized firms that lack resources and networks to overcome some of the more complex border rules now in place. Meeting trade facilitation goals in a broader and deeper context, however, will require action well outside and beyond the WTO framework. More effective delivery of development aid and technical assistance especially in projects to advance regulatory reform and support public agencies that promulgate and administer trade regulations is needed. A better understanding of conditions under which developing countries are ready to receive such assistance so that aid is effectively delivered is required.
(MDGs), building on the datasets in the Global Monitoring Reports which track progress in reaching poverty reduction
goals, among other reports, makes significant sense. In sum, the data gathered to date illustrate the fact that the non-tariff agenda in trade is increasingly important to economic development ahead.
Trade facilitation
Trade facilitation looks at how procedures and controls governing the movement of goods across national borders can be improved to reduce associated cost burdens and maximise efficiency while safeguarding legitimate regulatory objectives...
and economic development
Economic development
Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area...
reflect the idea that trade can be a powerful engine for accelerating economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
, job creation, and poverty reduction
Poverty reduction
Poverty is the state of human beings who are poor. That is, they have little or no material means of surviving—little or no food, shelter, clothes, healthcare, education, and other physical means of living and improving one's life....
.
Background
World trade has expanded rapidly over the past decades. This has been driven, in large part, by the changing nature of both production and increased competition in international commerce. Another important factor contributing to the growth in trade has been the periodic rounds of successful multilateral trade negotiations. These talks at the World Trade OrganizationWorld Trade Organization
The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
(WTO) have led to a considerable reduction in tariffs on goods crossing national borders. Today, as the role of traditional trade barriers gradually vanishes, the focus of trade policy has shifted to the remaining non-tariff barriers to trade
Non-tariff barriers to trade
Non-tariff barriers to trade are trade barriers that restrict imports but are not in the usual form of a tariff. Some common examples of NTB's are anti-dumping measures and countervailing duties, which, although they are called "non-tariff" barriers, have the effect of tariffs once they are...
, including trade facilitation
Trade facilitation
Trade facilitation looks at how procedures and controls governing the movement of goods across national borders can be improved to reduce associated cost burdens and maximise efficiency while safeguarding legitimate regulatory objectives...
.
Trade facilitation
Trade facilitation
Trade facilitation looks at how procedures and controls governing the movement of goods across national borders can be improved to reduce associated cost burdens and maximise efficiency while safeguarding legitimate regulatory objectives...
involves a wide range of activities centered on lowering trade transaction costs for firms in global commerce. These costs include the price of moving freight from the factory to final destinations. Firms must manage border clearance procedures and pay trade services fees, among many other steps after goods and services are produced. As such, trade facilitation
Trade facilitation
Trade facilitation looks at how procedures and controls governing the movement of goods across national borders can be improved to reduce associated cost burdens and maximise efficiency while safeguarding legitimate regulatory objectives...
involves much more than trucking goods across national borders or shipping a package by sea transport.
Cross-Country Comparisons and Performance
There is an increasing body of empirical evidence about the impact of trade facilitation on export competitiveness and growth. Studies reviewed by the Organisation for Economic Co-operation and DevelopmentOrganisation for Economic Co-operation and Development
The Organisation for Economic Co-operation and Development is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade...
(OECD, 2002) indicate that trade transaction costs amount to up to 15 percent of the value of traded goods globally. A subsequent OECD study (2003) found trade transactions costs to be higher on agricultural and food products, fish, and forest and wood products (since these products are subject to additional border procedures due to sanitary and phytosanitary requirements). These are products for which many developing countries have an advantage. The same study also reported that small and medium enterprises suffer most from poor trade-related practices and poorer developing countries have a larger share of such enterprises. A number of other studies have illustrated the specifics of why trade facilitation matters and specific sources of trade costs. One study, for example, found that barriers to export performance in Africa
Africa
Africa is the world's second largest and second most populous continent, after Asia. At about 30.2 million km² including adjacent islands, it covers 6% of the Earth's total surface area and 20.4% of the total land area...
are closely related to firm characteristics and policies that raise trade costs. This includes non-transparent customs
Customs
Customs is an authority or agency in a country responsible for collecting and safeguarding customs duties and for controlling the flow of goods including animals, transports, personal effects and hazardous items in and out of a country...
laws and administration. Much less evidence was found that transport infrastructure, in comparison, had a significant impact on export performance (Clarke, 2005).
World Bank Research
The World BankWorld Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
is conducting extensive research on the issue of trade facilitation and its effects on trade, economic growth, and development. The main part of the research is carried out under the project Trade Costs and Facilitation: The Development Dimension. This project is focused on contributing to stronger understanding of the concrete relationships between trade costs, trade facilitation, private sector growth, and export competitiveness in developing countries. A major focus of the work is on exploring the dynamic gains associated with lowering trade transactions costs and identifying the relative importance of related reform measures.
The World Bank's Doing Business Report (2007) documents the wide range of reform needed in developing countries to lower trade costs. The report outlines procedural requirements for importing and exporting a standardized cargo of goods in 155 countries. While the total cost to import (in US$ per container) was $842 on average in high income countries, it was $1960 in low income countries. Typical regulations in low income countries required 13 documents from domestic regulatory agencies as compared to six signatures in high income countries, nine in upper middle income and ten in low middle income countries. On average it still costs almost two and a half times in expenses, more than twice as many documents and four times as many signatures to trade in a poor country as it does in rich countries.
The Doing Business Report also provides concrete examples of efficiency savings made possible through trade facilitation reforms. Much of these relate to addressing regulatory reform and other steps--that in contrast to hard infrastructure--constitute the major part of why engaging in trade takes longer in developing countries. Progress in reducing costs, however, has been made. For example, Guatemala
Guatemala
Guatemala is a country in Central America bordered by Mexico to the north and west, the Pacific Ocean to the southwest, Belize to the northeast, the Caribbean to the east, and Honduras and El Salvador to the southeast...
with the support of the Inter-American Development Bank
Inter-American Development Bank
The Inter-American Development Bank is the largest source of development financing for Latin America and the Caribbean...
changed to an electronic system for export authorization in 2000. Within four years the time for authorization of export documents dropped from one day to around three minutes. Tunisia
Tunisia
Tunisia , officially the Tunisian RepublicThe long name of Tunisia in other languages used in the country is: , is the northernmost country in Africa. It is a Maghreb country and is bordered by Algeria to the west, Libya to the southeast, and the Mediterranean Sea to the north and east. Its area...
has also introduced an automated system that provides a one-stop trade documentation-processing platform. Due to this innovation the processing time for trade documentation became reduced from 18 to 7 days which probably had led to substantial productivity gains according to the United Nations Economic Commission for Africa
United Nations Economic Commission for Africa
The United Nations Economic Commission for Africa was established in 1958 by the United Nations Economic and Social Council to encourage economic cooperation among its member states following a recommendation of the United Nations General Assembly.It is one of five regional commissions.The ECA...
.
What are the Gains from Cutting Trade Costs?
There are important gains to lowering trade costs and facilitating trade with some variation across countries and sectors (Francois et al., 2005; OECD, 2003). Several studies have focused on the impact of trade facilitationTrade facilitation
Trade facilitation looks at how procedures and controls governing the movement of goods across national borders can be improved to reduce associated cost burdens and maximise efficiency while safeguarding legitimate regulatory objectives...
on the micro-level (OECD, 2005). They observe that in some developing countries inefficient trade regulations, documents and procedures are hindering firms' participation in export markets. The studies find large potential benefits from streamlining trade regulations and hence cutting the costs for exporting.
Analysis by the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
suggests that raising global capacity in trade facilitation
Trade facilitation
Trade facilitation looks at how procedures and controls governing the movement of goods across national borders can be improved to reduce associated cost burdens and maximise efficiency while safeguarding legitimate regulatory objectives...
(port efficiency, customs
Customs
Customs is an authority or agency in a country responsible for collecting and safeguarding customs duties and for controlling the flow of goods including animals, transports, personal effects and hazardous items in and out of a country...
, regulatory transparency, and information technology
Information technology
Information technology is the acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by a microelectronics-based combination of computing and telecommunications...
used in trade transactions) halfway to the global average would increase world trade by $377 billion (Wilson, et al. 2005). This is an increase of about 9.7 percent in global trade with the majority of the gains due to domestic reform and capacity building. About $107 billion of the total gain comes from the improvement in port efficiency and about $33 billion results from the improvement in customs environment. The gain from the improvement in regulatory environment is $83 billion. The largest gain ($154 billion) comes from an improvement in information technology infrastructure which is increasingly applied all across the trade value and logistics chain. The important work ahead to lower trade costs however is outside the scope of trade policy, therefore, and squarely centered within domestic reform agendas, including services such as transport, telecommunication, and others that affect trade transactions costs. There is also a key role to be played by private sector-led policy reform according to many of these studies.
Trade Costs and the Multilateral Trading System
Talks are underway on revisions to the WTO rules on trade facilitationTrade facilitation
Trade facilitation looks at how procedures and controls governing the movement of goods across national borders can be improved to reduce associated cost burdens and maximise efficiency while safeguarding legitimate regulatory objectives...
in the Doha Development Agenda negotiations. The outlines of a possible agreement includes, among others: (1). New obligations to promote electronic distribution and transmission of government trade regulations on imports and exports; (2). Standardization of certain basic fees for imports; (3). Stronger rules to help ensure freedom of transit for goods crossing national borders.
In the WTO Secretariat tabulation of proposals from August 11, 2006 there is consideration of more "ambitious" changes to current obligations, such as establishment of a single window for exporters and importers at customs
Customs
Customs is an authority or agency in a country responsible for collecting and safeguarding customs duties and for controlling the flow of goods including animals, transports, personal effects and hazardous items in and out of a country...
or accepting copies of documents for import and export in lieu of originals. Since 2002 there have also been talks about explicit ties between a package of technical assistance and development aid as part of any final agreement. Developing countries participated very actively in these negotiations and before the suspension of the Doha Round in late 2006 considerable progress had been achieved (World Bank, 2006).
Changes to the multilateral trade rules noted above can help in advancing transparent and predictable trading procedures for exporters. These rules have not been revised in over 50 years and crafting an achievable and focused next step in the Doha Agenda will be helpful to traders. This is especially true for small and medium-sized firms that lack resources and networks to overcome some of the more complex border rules now in place. Meeting trade facilitation goals in a broader and deeper context, however, will require action well outside and beyond the WTO framework. More effective delivery of development aid and technical assistance especially in projects to advance regulatory reform and support public agencies that promulgate and administer trade regulations is needed. A better understanding of conditions under which developing countries are ready to receive such assistance so that aid is effectively delivered is required.
The Agenda Ahead
At the most basic level, better data, analysis, and indicators of performance are needed to inform discussions moving forward on how trade costs and facilitation measures affect global commerce. Progress in reaching development goals in trade can only be made with accurate data and analysis to drive policy choice and action. Taking advantage of the energy behind reaching the Millennium Development GoalsMillennium Development Goals
The Millennium Development Goals are eight international development goals that all 193 United Nations member states and at least 23 international organizations have agreed to achieve by the year 2015...
(MDGs), building on the datasets in the Global Monitoring Reports which track progress in reaching poverty reduction
Poverty reduction
Poverty is the state of human beings who are poor. That is, they have little or no material means of surviving—little or no food, shelter, clothes, healthcare, education, and other physical means of living and improving one's life....
goals, among other reports, makes significant sense. In sum, the data gathered to date illustrate the fact that the non-tariff agenda in trade is increasingly important to economic development ahead.
External links
- Trade Costs and Facilitation: The Development Dimension, the main World Bank project on trade facilitation, economic growth and development.